CN (TSX: CNR) (NYSE: CNI) and Kansas City Southern (NYSE: KSU)
(“KCS”) today announced that the Hon. William Clyburn, Jr., a
former Commissioner and Vice-Chairman of the U.S. Surface
Transportation Board (“STB”) has written an op-ed, which was
published by Railway Age. In the op-ed, Clyburn states he believes
the CN voting trust addresses “unlawful control” and the “public
interest” under the new rules, and that as such, the voting trust
should be approved. The full text of the op-ed can be found
below:
CN Voting Trust Clears Tests Under STB New
Merger Rules: Should Be Approved
Written by William Clyburn, Jr.
Having been one of the three Surface
Transportation Board (STB) Members who voted on the 2001 Major
Merger Rules, it seems clear to me that the CN voting trust
satisfies the new rules requirements addressing “unlawful control”
and the “public interest” when deciding to approve or reject a
voting trust. As such, it should be approved so that the Board and
the public may move forward to consider the merits of the proposed
transaction.
In adopting the 2001 new merger rules with
respect to voting trusts, the STB voting trust regulation focused
on the impending control application and did not create a “new
test” to pre-judge the “public interest” merits of the entire
proposed transaction before approving a voting trust. We were
looking at the public interest factors that we believed were
relevant to voting trust approval, not approval of the merger
itself.
In reviewing voting trusts, we were focused
on two factors: (1) would the trust insulate the target company
from unlawful control by the acquiring company during the
regulatory review process; and (2) would the acquiring company and
target company remain financially sound so as to not jeopardize
either railroad in the event the transaction was eventually denied.
The new rules were designed to require applicants to formally meet
these tests before the Board would approve the use of a voting
trust.
Prior to adoption of the Major Merger Rules,
parties proposing use of a voting trust were free to use it without
Board approval. As a result, unless there was a controversy, the
Board itself rarely reviewed voting trusts. As part of the 2001
proceeding, we wanted more authority over and transparency into the
voting trust process. In that proceeding, we adopted rules that now
require (1) applicants of a major transaction to file a voting
trust for approval; (2) the Board to hold a “brief” period of time
for the public to comment on the use of a voting trust; and (3) the
Board to issue a decision after the comment period to either accept
or reject the trust. As part of that formal review process, the STB
examines the trust to ensure there is no unlawful control and to
determine whether the voting trust is in the public interest
regarding the financial integrity of the applicant carriers.
When considering the public interest of a
voting trust, and as explained in the merger rules themselves, we
were concerned about the financial health of the applicants and the
divestiture of the target railroad if the STB did not ultimately
approve the transaction. Specifically, we wrote then that the Board
is “responsible for ascertaining whether a proposed transaction
would undermine the financial integrity of the applicant carriers.”
As such, we adopted a public interest standard designed to focus on
the financial fitness of the merging parties, which was one of the
five public interest factors in the statute, and the most important
factor in reviewing voting trusts.
The proposed CN/KCS trust should be approved.
It incorporates the same elements that have already been approved
for the now moot CP/KCS voting trust and proposes to use the same
trustee. In approving the CP/KCS trust, the Board has already
determined that the trust structure does not cause unlawful,
premature control. The Board should reach the same conclusion with
respect to the CN/KCS trust. Similarly, in the CP/KCS decision, the
STB found that KCS will be financially fit while in trust, and the
STB reached the same conclusion with respect to CP’s financial
fitness.
Based upon the recent motion from CN
regarding their proposed voting trust, it seems clear that CN is
one of the most financially-sound railroads, and that it can more
than cover any debt it must take on to acquire KCS. CN has agreed
to forgo share repurchases until its debt ratio returns to pre-deal
levels. CN, like CP, should be found financially fit.
Likewise, in approving the CP/KCS trust, the
STB inherently found that there was no concern about divestiture of
KCS in the event that the STB did not approve the transaction. Such
a finding becomes even more poignant with respect to the CN/KCS
trust because CP has been clear that it remains interested in
acquiring KCS. On May 21, 2021, CP issued a press release stating
that “[w]ere KCS presented with the question of how to proceed
following a decision by the Board not to approve CN's proposed use
of a voting trust, CP anticipates being available to engage with
KCS to enter into another agreement to acquire KCS.” And it has
again said so in its recent motion for a declaratory order filed at
the STB.
The CN-KCS transaction appears to strengthen
competition by adding a strong competitor in the North-South lanes
in the industrial center of the country, and opens markets with new
single-line hauls, creating more efficient movements among Canada,
the United States, and Mexico. CN has committed to divest the only
overlapping line between the CN and KCS systems, a short 70 mile
line between New Orleans and Baton Rouge, and to maintain open
gateways. The CN-KCS combination is therefore a classic end-to-end
merger that preserves existing route options, enhances competition
with new, single-line routing options for shippers, and creates new
rail-to-rail competition.
Based upon my first-hand knowledge of the
internal conversations within the Board from when I voted on the
2001 new merger rules, it is my opinion that the CN voting trust
more than clears the two tests we established for such trusts in
2001 and should be considered on a level playing field with CP’s
approved trust. The CN trust should be approved so that the Board
and the public may move forward to consider the merits of the
transaction.
Mr. Clyburn is the Principal of Clyburn
Consulting LLC and was the fourth Member to serve on the United
States Surface Transportation Board (“Board”) since its inception
in 1996. He joined the Board in 1998 and served until the end of
2001, including as Vice Chairman. Prior to joining the Board, Mr.
Clyburn served as the Commerce Counsel to former U.S. Senator Chuck
Robb of Virginia and as Staff Counsel to the United States, Senate
Committee on Commerce, Science and Transportation from 1993 to 1995
and has been a consultant to Kansas City Southern. He also served
as senior counsel to U.S. Senator Zell Miller. From 1992 to 1993,
he served as a Judicial Attorney for the Hon. Rodney A. Peeples of
South Carolina’s Second and Ninth Circuit Courts.
For more information on CN’s pro-competitive combination with
KCS, please visit www.ConnectedContinent.com.
About CN
CN is a world-class transportation leader and trade-enabler.
Essential to the economy, to the customers, and to the communities
it serves, CN safely transports more than 300 million tons of
natural resources, manufactured products, and finished goods
throughout North America every year. As the only railroad
connecting Canada’s Eastern and Western coasts with the U.S. South
through a 19,500-mile rail network, CN and its affiliates have been
contributing to community prosperity and sustainable trade since
1919. CN is committed to programs supporting social responsibility
and environmental stewardship.
About Kansas City Southern
Headquartered in Kansas City, Mo., Kansas City Southern (KCS)
(NYSE: KSU) is a transportation holding company that has railroad
investments in the U.S., Mexico and Panama. Its primary U.S.
holding is The Kansas City Southern Railway Company, serving the
central and south central U.S. Its international holdings include
Kansas City Southern de Mexico, S.A. de C.V., serving northeastern
and central Mexico and the port cities of Lázaro Cárdenas, Tampico
and Veracruz, and a 50 percent interest in Panama Canal Railway
Company, providing ocean-to-ocean freight and passenger service
along the Panama Canal. KCS' North American rail holdings and
strategic alliances with other North American rail partners are
primary components of a unique railway system, linking the
commercial and industrial centers of the U.S., Mexico and Canada.
More information about KCS can be found at www.kcsouthern.com
Forward Looking Statements
Certain statements included in this news release constitute
“forward-looking statements” within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and under
Canadian securities laws, including statements based on
management’s assessment and assumptions and publicly available
information with respect to KCS, regarding the proposed transaction
between CN and KCS, the expected benefits of the proposed
transaction and future opportunities for the combined company. By
their nature, forward-looking statements involve risks,
uncertainties and assumptions. CN cautions that its assumptions may
not materialize and that current economic conditions render such
assumptions, although reasonable at the time they were made,
subject to greater uncertainty. Forward-looking statements may be
identified by the use of terminology such as “believes,” “expects,”
“anticipates,” “assumes,” “outlook,” “plans,” “targets,” or other
similar words.
Forward-looking statements are not guarantees of future
performance and involve risks, uncertainties and other factors
which may cause actual results, performance or achievements of CN,
or the combined company, to be materially different from the
outlook or any future results, performance or achievements implied
by such statements. Accordingly, readers are advised not to place
undue reliance on forward-looking statements. Important risk
factors that could affect the forward-looking statements in this
news release include, but are not limited to: the outcome of the
proposed transaction between CN and KCS; the parties’ ability to
consummate the proposed transaction; the conditions to the
completion of the proposed transaction; that the regulatory
approvals required for the proposed transaction may not be obtained
on the terms expected or on the anticipated schedule or at all;
CN’s indebtedness, including the substantial indebtedness CN
expects to incur and assume in connection with the proposed
transaction and the need to generate sufficient cash flows to
service and repay such debt; CN’s ability to meet expectations
regarding the timing, completion and accounting and tax treatments
of the proposed transaction; the possibility that CN may be unable
to achieve expected synergies and operating efficiencies within the
expected time-frames or at all and to successfully integrate KCS’
operations with those of CN; that such integration may be more
difficult, time-consuming or costly than expected; that operating
costs, customer loss and business disruption (including, without
limitation, difficulties in maintaining relationships with
employees, customers or suppliers) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; the retention of certain key employees of
KCS may be difficult; the duration and effects of the COVID-19
pandemic, general economic and business conditions, particularly in
the context of the COVID-19 pandemic; industry competition;
inflation, currency and interest rate fluctuations; changes in fuel
prices; legislative and/or regulatory developments; compliance with
environmental laws and regulations; actions by regulators; the
adverse impact of any termination or revocation by the Mexican
government of KCS de México, S.A. de C.V.’s Concession; increases
in maintenance and operating costs; security threats; reliance on
technology and related cybersecurity risk; trade restrictions or
other changes to international trade arrangements; transportation
of hazardous materials; various events which could disrupt
operations, including illegal blockades of rail networks, and
natural events such as severe weather, droughts, fires, floods and
earthquakes; climate change; labor negotiations and disruptions;
environmental claims; uncertainties of investigations, proceedings
or other types of claims and litigation; risks and liabilities
arising from derailments; timing and completion of capital
programs; and other risks detailed from time to time in reports
filed by CN with securities regulators in Canada and the United
States. Reference should also be made to Management’s Discussion
and Analysis in CN’s annual and interim reports, Annual Information
Form and Form 40-F, filed with Canadian and U.S. securities
regulators and available on CN’s website, for a description of
major risk factors relating to CN. Additional risks that may affect
KCS’ results of operations appear in Part I, Item 1A “Risks Related
to KCS’s Operations and Business” of KCS’ Annual Report on Form
10-K for the year ended December 31, 2020, and in KCS’ other
filings with the U.S. Securities and Exchange Commission
(“SEC”).
Forward-looking statements reflect information as of the date on
which they are made. CN assumes no obligation to update or revise
forward-looking statements to reflect future events, changes in
circumstances, or changes in beliefs, unless required by applicable
securities laws. In the event CN does update any forward-looking
statement, no inference should be made that CN will make additional
updates with respect to that statement, related matters, or any
other forward-looking statement.
No Offer or Solicitation
This news release does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find It
In connection with the proposed transaction, CN will file with
the SEC a registration statement on Form F-4 to register the shares
to be issued in connection with the proposed transaction. The
registration statement will include a preliminary proxy statement
of KCS which, when finalized, will be sent to the stockholders of
KCS seeking their approval of the merger-related proposals. This
news release is not a substitute for the proxy statement or
registration statement or other document CN and/or KCS may file
with the SEC or applicable securities regulators in Canada in
connection with the proposed transaction.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY
STATEMENT(S), REGISTRATION STATEMENT(S), TENDER OFFER STATEMENT,
PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC OR
APPLICABLE SECURITIES REGULATORS IN CANADA CAREFULLY IN THEIR
ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT CN, KCS AND THE PROPOSED
TRANSACTIONS. Any definitive proxy statement(s), registration
statement or prospectus(es) and other documents filed by CN and KCS
(if and when available) will be mailed to stockholders of CN and/or
KCS, as applicable. Investors and security holders will be able to
obtain copies of these documents (if and when available) and other
documents filed with the SEC and applicable securities regulators
in Canada by CN free of charge at www.sec.gov and www.sedar.com.
Copies of the documents filed by CN (if and when available) will
also be made available free of charge by accessing CN’s website at
www.CN.ca. Copies of the documents filed by KCS (if and when
available) will also be made available free of charge at
www.investors.kcsouthern.com, upon written request delivered to KCS
at 427 West 12th Street, Kansas City, Missouri 64105, Attention:
Corporate Secretary, or by calling KCS’s Corporate Secretary’s
Office by telephone at 1-888-800-3690 or by email at
corpsec@kcsouthern.com.
Participants
This news release is neither a solicitation of a proxy nor a
substitute for any proxy statement or other filings that may be
made with the SEC and applicable securities regulators in Canada.
Nonetheless, CN, KCS, and certain of their directors and executive
officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies in respect
of the proposed transactions. Information about CN’s executive
officers and directors is available in its 2021 Management
Information Circular, dated March 9, 2021, as well as its 2020
Annual Report on Form 40-F filed with the SEC on February 1, 2021,
in each case available on its website at www.CN.ca/investors/ and
at www.sec.gov and www.sedar.com. Information about KCS’ directors
and executive officers may be found on its website at
www.kcsouthern.com and in its 2020 Annual Report on Form 10-K filed
with the SEC on January 29, 2021, available at
www.investors.kcsouthern.com and www.sec.gov. Additional
information regarding the interests of such potential participants
will be included in one or more registration statements, proxy
statements, tender offer statements or other documents filed with
the SEC and applicable securities regulators in Canada if and when
they become available. These documents (if and when available) may
be obtained free of charge from the SEC’s website at www.sec.gov
and from www.sedar.com, as applicable.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210610005190/en/
Media: CN Canada
Mathieu Gaudreault CN Media Relations & Public Affairs (514)
249-4735 Mathieu.Gaudreault@cn.ca
Longview Communications & Public Affairs Martin Cej (403)
512-5730 mcej@longviewcomms.ca
United States Brunswick Group Jonathan Doorley / Rebecca
Kral (917) 459-0419 / (917) 818-9002 jdoorley@brunswickgroup.com
rkral@brunswickgroup.com
Media: KCS C. Doniele
Carlson KCS Corporate Communications & Community Affairs (816)
983-1372 dcarlson@kcsouthern.com
Joele Frank, Wilkinson Brimmer Katcher Tim Lynch / Ed Trissel
(212) 355-4449
Investment Community: CN
Paul Butcher Vice-President Investor Relations (514) 399-0052
investor.relations@cn.ca
Investment Community: KCS
Ashley Thorne Vice President Investor Relations (816) 983-1530
athorne@kcsouthern.com
MacKenzie Partners, Inc. Dan Burch / Laurie Connell (212)
929-5748 / (212) 378-7071
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